Times are changing for Tatts

Will these changes be enough to create long-term shareholder value?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This is the first full report after Tatts Group's (ASX: TTS) Victoria Tatts Pokies licence expired in August 2012. At the same time, it acquired the licence rights for managing South Australia Lotteries, and now 46 weeks of revenue and profits from that acquisition can be seen.

For revenue from continuing operations (excluding Tatts Pokies), there was an 11% increase to $2.95 billion, and net profit after tax from continuing operations was up 40.8% to $227.4 million. However, if we compare totals from 2012 annual report, there was actually a 24.5% drop in revenue from $3.88 billion, and a 22.5% decrease in NPAT, of which a majority of the difference would be from the loss of Tatts Pokies revenue.

For older shareholders, they would see the drop, but new investors can possibly realise more value by having that out of the way and looking for growth from SA Lotteries as well as from new initiatives in online wagering and lotteries. The new licence did cost the company $427 million, so that went against this year's revenue.

Tatts Lotteries delivered revenue growth for the year of 13.6% to $2,008.6 million. The two most popular lotteries, Powerball and Oz Lotto, increased sales by 50.3% and 35.1% respectively.

This was also the first year that Tote Tasmania's revenue is included, and with Tatts Bet, sales for fixed price betting were up 20.6%. Maxgaming saw a revenue decrease of 1.3%, but with management developing new products and focusing on cost cutting, EBIT for this division was actually up 8.1%

Two divisions, Bytecraft and Talarius, both saw net losses in earnings before interest and tax.

Even though Tatts Pokies is not a continuing operation now, for the first six weeks of the financial year until August 15, 2012, it did provide $190.7 million of sales and $35.8 million in EBIT of this annual report's total revenues and earnings. For the coming year, that will not be present, so investors will have to see how SA Lotteries and other expansion can make up for that revenue loss.

As for financials, return on equity was 8.79% and net profit margin was 8.28%, both down from last year. Its gross gearing is still not excessive, but it has been growing over the past several years. Book value per share is $1.97 and the share price is around $3.20. That is basically the same price it listed at in June 2005.

A 7.5 cents per share dividend fully franked was declared, bringing the total year dividend to 15.5 cps, making a 4.84% gross dividend yield.

Foolish takeaway

Companies in transition can seem sometimes like losing propositions, and very well can be for older shareholders, so you have to adjust your portfolio with respect to how the company's business story changes over time. When the story gets better, or a tough patch has been passed, true value investors move before the general market notices the change thoroughly.

Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »